Freivogel on Conflicts
 “Hot Potato” Doctrine

Home/Table of Contents

Law Firm is representing Client A in only one matter, the appeal of a $20,000 jury verdict arising out of a truck accident.  The matter has been fully briefed, and the parties are awaiting a decision.  Company B comes to Law Firm and asks it to represent Company B in a $1 billion patent infringement action against Client A.  Company B wants to file immediately.  Because the patent case is totally unrelated to the truck accident, Law Firm asks Client A to consent to Law Firm's handling the patent case.  Client A refuses to consent.  Law Firm then files a motion to withdraw from the appeal proceeding, which Client A, now highly miffed, does not oppose.  After obtaining an order allowing its withdrawal, Law Firm files the patent case against former Client A.  A now moves to disqualify Law Firm.

        Change the facts sightly.  Law Firm discovers that because of a malfunction in its conflicts system, it has wound up representing Company A in the accident case and has opened a file for Company B.  Law Firm begins work for Company B on the patent infringement case.  Upon learning of the conflict, Law Firm moves to withdraw from the accident case, which is unopposed.  Law Firm then files the infringement case, and Company A moves to disqualify Law Firm in that case.

        What result in each case?

        With a handful of exceptions, all courts of which we are aware that have addressed the above fact patterns, have ordered the firm disqualified.  However, where the law firm did not create the conflict, or could not have been aware of it prior to taking on the disputed representation, courts have allowed the firm to drop one client and continue on behalf of the other.

        In the following cases, the court held that the law firm should be disqualified.  Several of them used language to the effect that a law firm should not be allowed to drop one client "like a hot potato," in order to take on a more lucrative assignment from another client against the "dropped" client: Markham Concepts, Inc. v. Hasbro, Inc., 2016 WL 3976632 (D.R.I. July 22, 2016); Western Sugar Coop. v. Archer-Daniels-Midland Co., No. CV 11-3473 CBM (MANx) (C.D. Cal. Feb. 13, 2015) (firm dropped client when conflict raised); In re Lennys Copy Ctr. & More LLC, 2014 Bankr. LEXIS 3138 (E.D. Mich. July 18, 2014); Folsom v. Menard, Inc., 2011 U.S. Dist. LEXIS 40406 (S.D. Ind. April 13, 2011) (relies on Hoosier; see below); Ltd. v. Belkin Int'l, Inc., 2010  U.S. Dist. LEXIS 138407 (N.D. Cal. Dec. 22, 2010) (does not use hot potato terminology); Merck Eprova AG v. Pro Thera, Inc., 670 F. Supp. 2d 201 (S.D.N.Y. 2009) (court found simultaneous representation, but noted hot potato rule with approval); El Camino Resources, Ltd. v. Huntington Nat’l Bank, 2007 U.S. Dist. LEXIS 67813 (W.D. Mich. Sept. 13, 2007); Eastman Kodak Co. v. Sony Corp., 2004 U.S. Dist. LEXIS 29883 (W.D.N.Y. Dec. 27, 2004) (firm chose to start to handle matters adverse to new client knowing new client would acquire firm's existing client; firm had to drop adverse matters); Argue v. David Davis Enterprises, Inc., 2004 U.S. Dist. LEXIS 22630 (E.D. Pa. Nov. 4, 2004); Santacroce v. Neff, 134 F. Supp. 2d 366 (D.N.J. 2001); GATX/Airlog Co. v. Evergreen Int'l. Airlines, Inc., 8 F. Supp. 2d 1182 (N.D. Cal. 1998); Mindscape, Inc. v. Media Depot, Inc., 973 F. Supp. 1130 (N.D. Cal. 1997); International Longshoremen's Assoc., Local Union 1332 v. International Longshoremen's Assoc., 909 F. Supp. 287 (E.D. Pa. 1995); Lemelson v. Apple Computer, Inc., 28 U.S.P.Q.2d 1412 (D. Nev. 1993); Harrison v. Fisons Corp., 819 F. Supp. 1039 (M.D. Fla. 1993); Strategem Dev. Corp. v. Heron Int'l., N.V., 756 F. Supp. 789 (S.D.N.Y. 1991); Harte Biltmore Ltd. v. First Pennsylvania Bank, N.A., 655 F. Supp. 419 (S.D. Fla. 1987); Picker Int'l. Inc. v. Varian Assoc., Inc., 670 F. Supp. 1363 (N.D. Ohio 1987); Ransburg Corp. v. Champion Spark Plug Co., 648 F. Supp. 1040 (N.D. Ill. 1986); Estates Theatres, Inc. v. Columbia Pictures Industries, Inc., 345 F. Supp. 93 (S.D.N.Y. 1972); Airis SFO, LLC v. City and County of San Francisco, 2006 WL 2949329 (Cal. App. Oct. 17, 2006) (recognized “hot potato” rule, but held it did not apply in this case); International Union of Operating Engineers, AFL/CIO, 2004 WL 1616296 (Cal App. July 20, 2004); Truck Ins. Exchange v. Fireman's Fund Ins. Co., 8 Cal. Rptr. 2d 228 (Cal. App. 1992); Young v. Achenbauch, 2014 Fla. LEXIS 1029 (Fla. March 27, 2014); Reed v. Hoosier Health Systems, Inc., 825 N.E.2d 408 (Ind. App. 2005) (slightly different context, but court cites "hot potato" cases as support); Board of Prof. Ethics & Conduct v. Winkel, 599 N.W.2d 456 (Iowa 1999)(discipline); Ferguson Electric Co, Inc. v. Suffolk Construction Co., Inc., 1998 Mass. Super. LEXIS 289 (Mass. Super. 1998); In re Johnson, 84 P.3d 637 (Mont. 2004) (lawyer disciplined); Michaels v. Zinger, 2008 N.Y. Misc. LEXIS 3450 (N.Y. Misc. June 10, 2008); Wallace v. Canadian Pac. Ry., 2011 SKCA 108 (Ct. App. Sask. Sept. 28, 2011).  See Conoco, Inc. v. Baskin, 803 S.W.2d 416 (Tex. App. 1991).

        The court refused to disqualify the law firm in Kaminski Bros., Inc. v. Detroit Diesel Allison, Div. of Gen. Motors Corp., 638 F. Supp. 414 (M.D. Pa. 1985).  General Motors had assigned a series of tort cases to the law firm over a period of several years.  While several of those cases were pending, the law firm attempted to withdraw from them and sue General Motors on an unrelated matter.  The court denied General Motors' motion to disqualify.  The court noted that before the law firm took on the matter adverse to General Motors, General Motors had told the law firm that it was not going to send the law firm any more cases.  For a more recent case that was quite similar, see Pfizer, Inc. v. Stryker Corp., 256 F. Supp. 2d 224 (S.D.N.Y. 2003).

        Appears Court Looked the other Way.  Bayshore Ford Truck Sales, Inc. v. Ford Motor Co., 380 F.3d 1331 (11th Cir. 2004).  Firm brought in a lawyer with a client that Firm was suing.  When Firm was unable to get a waiver from the new client, Firm dropped the new client and was allowed to continue opposing the former new client.

        Law firm gets a pass.  In Flying J Inc. v. TA Operating Corp., 2008 U.S. Dist. LEXIS 18459 (D. Utah March 10, 2008), a law firm found itself with a current conflict.  It is not entirely clear whose “fault” it was.  Nevertheless, the law firm dropped one client in order to stay in a matter adverse to that client.  Although the court felt that the firm violated the Hot Potato rule, and was not subject to the “thrust upon” exception, the court felt that, on balance, it would be better if the firm were not disqualified in the remaining matter (this case).  The courts reached similar conclusions in Ogle v. Wells Fargo Financial Leasing, Inc., 45 Bankr. Ct. Dec. 258 (B. Ct. N.D.N.Y. 2005) and Pamlab, L.L.C. v. Hi-Tech Pharmacal Co., 2009 U.S. Dist. Lexis 3528 (D. Colo. 2009) (lawyer left firm leaving "dropped" client behind).

        Metropolitan Life Ins. Co. v. The Guardian Life Ins. Co. of America, 2009 U.S. Dist. LEXIS 42475 (N.D. Ill. May 18, 2009).  Law Firm represented Plaintiff on several matters.  At the time Plaintiff commenced this case Law Firm had completed all tasks on those matters, although Law Firm had not "formally" terminated the representations.  Defendant asked Law Firm to represent it in this case.  Law Firm did a conflicts check, which revealed the above representations, none of which was related to this case.  Law Firm then notified Plaintiff that its representation was terminated.  Plaintiff moved to disqualify Law Firm in this case.  In this opinion the court denied the motion.  On balance the court felt that while Law Firm had violated the Northern District's version of Model Rule 1.7, because Plaintiff was not harmed by the violation, the violation was not enough to warrant disqualification.  The court felt that this was a close case regarding application of the "hot potato" rule.  But given that the work on the prior matters had ended, the court refused to apply it, adding that "courts should not be overly eager to substitute a clever phrase for thorough legal analysis."

        "Reverse" Hot Potato Case: Client Fires Law Firm.  In Coke v. Equity Residential Properties Trust, 800 N.E.2d 280 (Mass. 2003), the client, angered by the law firm's conflict, fired the law firm.  The court held that the termination of that relationship mooted the conflict issue.  But, in In re Ralph Roberts Realty, LLC, 2013 Bankr. LEXIS 1003 (E.D. Mich. March 18, 2013), when the law firm showed up on the other side of a matter, the client stopped using the law firm, but the court still treated it as a hot potato case.

        Lawyer did not even know she was dropping a client and still got disqualified.  Atlantic Pacific Home Loans, Inc. v. Superior Court, 2006 Cal. App. Unpub. LEXIS 11228 (Cal. App. Dec. 13, 2006).

        The "Thrust Upon" Exception.  In the following additional cases the court allowed the law firm to drop one client in order to continue on behalf of another.  In each case the conflict did not exist when the disputed matter was taken on and was not created by the law firm.  Some courts say the conflict was "thrust upon" the law firm.  In re Sandahl, 980 F.2d 1118 (7th Cir. 1992);  Tipton v. Canadian Imperial Bank of Commerce, 872 F.2d 1491 (11th Cir. 1989); Microsoft Corp. v. Commonwealth Scientific & Industrial Research Org., 2007 U.S. Dist. LEXIS 91550 (E.D. Tex. Dec. 13, 2007) (one-off application of exception); University of Rochester v. G.D. Searle & Co., 2000 U.S. Dist. LEXIS 19030 (W.D.N.Y. 2000); Carlyle Towers Condominium Assoc., Inc. v. Crossland Savings, FSB, 944 F. Supp. 341 (D.N.J. 1996); Monaghan v. S2S 33 Associates, L.P., 1994 WL 623185 (S.D.N.Y. 1994); Hawthorne Partners v. AT&T Technologies, 1993 U.S. Dist. LEXIS 2575 (N.D. Ill. 1993); In Re Wingspread Corp., 152 B.R. 861 (S.D.N.Y. 1993); Florida Ins. Guaranty Ass'n. v. Carey Canada, Inc., 749 F. Supp. 255 (S.D. Fla. 1990); Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990); In Re Dayco Corp. Derivative Sec. Lit., 102 F.R.D. 624 (S.D. Ohio 1984); Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264 (D. Del. 1980); Chateau De Ville Productions, Inc. v. Tams-Witmark Music Library, Inc., 474 F. Supp. 223 (S.D.N.Y. 1979); and In Re AmSouth Bank, N.A., 589 So. 2d 715 (Ala. 1991).  See Pearson v. Singing River Med. Center, Inc., 757 F. Supp. 768 (S.D. Miss. 1991); Davis v. Stansbury, 824 S.W.2d 278 (Tex. App. 1992) (Tex. rule seems to contemplate lawyer withdrawal as remedy).  Accord, Molina v. Mallah Org., Inc., 804 F. Supp. 504 (S.D.N.Y. 1992); and Rice v. Baron, 456 F. Supp. 1361 (S.D.N.Y. 1978).

        The law firm did not fare so well in Manufacturers Hanover Trust Co. v. Stamford Hotel Ltd. Partnership, 1992 Conn. Super. LEXIS 3119 (Conn. Super. 1992).  The law firm did not create the conflict, and the conflict did not exist when the disputed matter began.  Nevertheless, the court granted a motion to disqualify and gave several reasons.  First, the law firm had not disclosed the conflict when it learned of it.  Moreover, when the law firm did ask for a consent, it did not fully disclose how adversarial the disputed matter would become.

        Commonwealth Scientific & Industrial Research Org. v. Toshiba America Information Systems, Inc., 2008 U.S. App. LEXIS 22114 (Fed. Cir. October 23, 2008).  Law Firm represents the plaintiff in this patent infringement suit.  For several years Law Firm had done trademark and patent work for Marvell.  When Marvell disclosed to Law Firm that Marvell had agreed to indemnify several of the parties that Law Firm was suing on behalf of the plaintiff, Law Firm sought a waiver of the conflict.  Marvell refused to grant the waiver and sued in state court to enjoin Law Firm's representation in this case.  That court held it did not have jurisdiction to enjoin Law Firm in federal court.   Law Firm discontinued representing Marvell and continued to represent the plaintiff.  Marvell sought to intervene in this case and moved to disqualify Law Firm.  The trial court denied the motion to intervene and ruled against Marvell on the merits of the conflict of interest issue.  In this opinion the Federal Circuit affirmed.  The court recognized the applicability of the "thrust upon" exception to the "hot potato" rule and applied the substantial relationship test for former clients.  The court resolved that test in favor of Law Firm.

        SAS Institute Inc. v. Akin Gump Strauss Hauer & Feld, 2011 U.S. Dist. LEXIS 29489 (E.D.N.C. March 22, 2011).  Law Firm represented SAS on several patent matters.  Then, in a seeming lightening fast series of actions Law Firm terminated its representation of SAS and filed a patent infringement action against SAS.  SAS sued Law Firm in this case.  In this very brief opinion the court denied a FRCP 12(b)(6) motion and held that SAS had successfully pleaded causes of action for constructive fraud and breach of contract.  Because this was only a motion to dismiss, it would serve little purpose to lay out additional facts at this time.  In SAS Inst. Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 2011 U.S. Dist. LEXIS 146017 (E.D.N.C. Dec. 20, 2011), the magistrate judge ruled on several contested discovery issues.  Basically, the judge held that documents reflecting the mechanics of new client intake are not protected by the A/C privilege, and that matters of substance could be redacted.

        Thrust upon: Firm Tried to Withdraw - Denied.  Installation Software Technologies, Inc. v. Wise Solutions, Inc., 2004 U.S. Dist. LEXIS 3388 (N.D. Ill. March 5, 2004).  Baker & McKenzie (“Baker”) filed this action on behalf of Installation Software (“IS”) in June 2003.  In December 2003, Altiris, Inc. purchased the defendant, Wise Solutions, as a wholly-owned subsidiary.  At the time of the acquisition, Altiris was a client of Baker.  Upon being notified of the acquisition, Baker moved to withdraw from this case.  Altiris/Wise supported the motion.  IS opposed it.  The court denied the motion to withdraw.  The court’s principle finding was that Baker’s work for Altiris did not in any way relate to this case.  The court adopted the reasoning in Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990), an early “thrust-upon” case.  What was not satisfying about the opinion in this case was the court’s seeming knee-jerk view that the Altiris acquisition of Wise created a conflict.  A majority of courts have held that whether a parent and subsidiary are one for conflicts purposes depends on the circumstances.  The court did note that the General Counsel for Altiris, with whom Baker had worked, had also become General Counsel for Wise.  Many would view that dual relationship as tipping the scales in favor of finding a conflict.  Another oddity: while Altiris was not a party, the court suggested that Baker must drop Altiris as a client in order not to violate conflict rules.

        Phila. Op. 2009-7 (2009). Law Firm is representing Developer and is seeking governmental approvals for a development. Another client of Law Firm (“Client 2”), on other things, is actively opposing the development. This opinion provides that Law Firm has a direct adversity conflict and suggests ways it might be cured (Client 2’s consent, etc.). The opinion holds that Law Firm cannot cure the conflict by dropping Client 2 on the other matters because of the “hot potato” rule. It also holds that the “thrust upon” exception will not work because Law Firm, when it undertook to represent Developer at the outset, should have known that other clients might come out of the woodwork to oppose the project.

        New cmt. [5] to Model Rule 1.7 (adopted February 2002) explicitly recognizes the majority approach to "thrust upon" situations.

       Ethics Opinions.  Phila. Op. 2009-4 (March 2009) (recognizing rule); D.C. Op. 292 (1999), Mass. Op. 92-3 (1992), and Mich. Op. RI-139 (1992) embrace the "hot potato" rule.  The court in AmSouth noted an unreported Alabama Bar ethics opinion, which also adopts the "hot potato" rule, Ala. Op. RO-91-08.  D.C. Op. 272 (1997) also recognizes the rule, but would allow a law firm to withdraw from a current client where no matter was currently pending for that client in order to handle a matter for another long-time client.   N.Y. City Op. 2005-05 (June 2005) and Orange Co. (Cal.) Op. 2012-1, adopt the thrust-upon approach followed by the cases above.

        Philadelphia Op. 2009-7 (July 2009).  The opinion deals with Law Firm's representation of a real estate developer in the development of a site.  A neighbor of the site objects and has expressed the intention to appear before various governmental bodies to oppose the development.  The problem is that the neighbor is a client of Law Firm on unrelated matters.  The opinion holds that Law Firm's only remedy is to withdraw from, or severely cut back, it role in representing the developer.  The opinion further holds that to withdraw from representing the neighbor on the other matters would violate the Hot Potato rule.  [Note: this opinion has generated some controversy.  We will refrain from expressing view at this time.  Would this ruling also apply to a law firm representing a public utility in seeking a rate increase where other clients of the firm are objectors?]

        Restatement.  See § 128, cmt. e, illus. 4 and § 132, cmts. c and j.

        Law Review. John Leubsdorf, Conflicts of Interest: Slicing the Hot Potato Doctrine (Rutgers School of Law-Newark Working Paper 079, August 19, 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1662130.

        Treatises.  Hazard, Hodes, & Jarvis § 20.10; Rotunda & Dzienkowski § 1.7-5.

Home/Table of Contents